The California Court of Appeal, Fourth District, recently reversed summary judgment awarded in favor of the defendant based on violations of the California Invasion of Privacy Act, which prohibits the recording of confidential communications without the knowledge or consent of the other party, and the intentional recording of communications using a cellular or cordless telephone.

In so ruling, the Appellate Court held that the defendant could not establish that it lacked the requisite intent to violate the Privacy Act, because the defendant’s full-time “always on” recording system recorded all calls on the company phones regardless of whether the calls were made for personal or business purpose.

A copy of the opinion in Rojas v. HSBC Card Services Inc. is available at: Link to Opinion.

From March 2009 through May 2012, the defendant employed a full-time “always on” telephone call recording system that was activated when an employee placed a telephone call.

The defendant recorded 317 of the plaintiff’s telephone conversations in calls made to the plaintiff on the defendant’s company telephone. The plaintiff’s daughter, who was employed by the defendant, placed 316 of the calls, and the plaintiff’s friend, who was also an employee of the defendant, placed one of the calls. None of these calls involved the defendant’s business.

In the defendant’s “Electronic Monitoring and Device Use” written policy in effect at the time, the defendant authorized its employees to use company telephones for personal calls, expressly advising them in writing that their “personal calls may be recorded.”

Specifically, the plaintiff alleged that the defendant intentionally recorded her confidential telephone conversations in violation of: (1) § 632(a), which prohibits one party to a telephone call from intentionally recording a confidential communication without the knowledge or consent of the other party, and (2) § 632.7(a), which prohibits the intentional recording of a communication using a cellular or cordless telephone.

The defendant filed a motion for summary judgment, arguing that both causes of action fail, because the defendant did not intentionally record any of the plaintiff’s telephone calls. The defendant argued that it did not intend to record each specific conversation at issue, and the plaintiff cannot establish that the defendant had the requisite intent for purposes of violating section 632(a) or section 632.7(a).

The plaintiff argued that the defendant did not meet its initial burden to establish its lack of intent, and even if it did, there were triable issues of material fact that precluded summary judgment in its favor.

The trial court granted the defendant’s motion for summary judgment. This appeal followed.

The issue on appeal was, for purposes of determining a potential violation of section 632(a) or section 632.7(a), whether the defendant intentionally recorded the plaintiff’s conversations with the defendant’s employees.

The defendant argued that it did not “intentionally” record the 317 challenged calls, as required for purposes of §§ 632(a) and 632.7(a), because the mere act of installing a recording device on company phones did not satisfy the requirements for intent under the eavesdrop statutes. The defendant argued that these recordings were made “by chance.”

However, in the Appellate Court’s view, the defendant did not record the 317 confidential conversations by chance. Instead, these recordings were made by a full-time “always on” telephone call recording system that was always in operation, and the defendant recorded all calls made from the designated company telephone. Additionally, the Appellate Court found that the defendant authorized its employees to use company telephones for personal calls and advised them that their “personal calls may be recorded.”

Thus, the Appellate Court held that the defendant failed to meet its initial burden on summary judgment, because its call recording system recorded all calls during the period of time when the defendant recorded the 317 conversations at issue. Because the defendant recorded the calls that contained the plaintiff’s confidential communication, the Appellate Court concluded that the defendant may have violated both sections 632(a) and section 632.7(a).

Notwithstanding the automatic recording of all calls on company phones, the defendant argued that these eavesdrop statutes were designed to protect individuals against eavesdroppers without penalizing the innocent use of recording equipment.

As support for this argument, the defendant cited People v. Superior Court of Los Angeles County, (1969) 70 Cal.2d 123 (“Smith”), and People v. Buchanan, (1972) 26 Cal.App.3d 274 (“Buchanan”).

In Smith, a criminal case, the issue was whether certain tape recorded conversations were obtained in violation of former section 653j, the predecessor to section 632 under consideration in this case. People v. Superior Court of Los Angeles County, (1969) 70 Cal.2d 123, 125. The defendant business owner in Smith hired a private investigator to install and test a voice-activated tape recorder that would record all conversations, including telephone conversations in its offices, both automatically (noise-activated) and manually. Id., at 126. The defendant in Smith was charged with a crime, the tapes were potential evidence, and it was the defendant who argued that the tape recordings were made in violation of the applicable statute. Id., at 126-27.

The court in Smith rejected the criminal defendant’s statutory interpretation that “intent to record” meant merely putting the recording equipment in operation. Id., at 132. Rather, the court in Smith held that “the mere intent to activate a tape recorder which subsequently ‘by chance’ records a confidential communication” was insufficient to constitute an offense.

However, as the Appellate Court explained, the California Supreme Court later summarized its conclusion in Smith as follows:

Former section 653j, subdivision (a) “required an intent to record a confidential communication, rather than simply an intent to turn on a recording system apparatus which happened to record a confidential communication.” Estate of Kramme, (1978) 20 Cal.3d 567, 572, fn. 5.

Applying this standard, the Appellate Court determined that the defendant’s recordings were unlike the recording in Smith. The defendant in this case did not merely record confidential communications while testing its recording equipment. Rather, the defendant knew that it was recording all calls on company phones and told its employees that they were authorized to use company phones for personal use and that their personal calls might be recorded.

Thus, based on the different timing, frequency, and purpose for using the equipment that recorded the challenged calls, the Appellate Court distinguished Smith.

In Buchanan, a switchboard operator “inadvertently” overheard a telephone conversation during the moment in time that she was required to stay on the line to ensure a proper connection. People v. Buchanan, (1972) 26 Cal.App.3d 274, 281. The court in Buchanan held that the operator did not intentionally eavesdrop on a telephone call in violation of the Privacy Act. Id., at 288.

The Appellate Court easily distinguished Buchanan because in the Court’s view there was nothing inadvertent or momentary about the defendant’s recording of the 317 challenged calls. The Court found that the defendant was purposefully recording all calls on the company telephone lines from which the 317 challenged calls were recorded. Moreover, the defendant’s disclosures regarding the practice of recording calls, and the plaintiff’s knowledge of the company policy of recording calls, weighed against a lack of intent for purposes of section 632(a) or section 632.7(a).

In sum, the Appellate Court concluded that the defendant did not meet its burden of establishing as a matter of law that it did not have “knowledge to a substantial certainty that [its] use of the equipment w[ould] result in the recording of a confidential conversation” of an employee and a third party like the plaintiff. Smith, 70 Cal.2d at 134.

Accordingly, the Appellate Court reversed the judgment, and instructed the trial court on remand to enter an order denying the defendant’s motion for summary judgment.

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Eric Tsai practices in Maurice Wutscher’s Commercial Litigation and Consumer Credit Litigation groups, and in its Regulatory Compliance group. He concentrates his practice primarily on the defense of consumer and commercial financial services companies, including mortgage lenders and servicers, mortgage loan investors, third party debt collectors, and other financial services providers. He also counsels clients on regulatory compliance, licensing, and other consumer protection matters. Eric earned his undergraduate degree from the University of California, Irvine. Prior to attending law school, he worked as a loan officer for national direct lenders. He earned his Juris Doctor from California Western School of Law and thereafter obtained a Master of Laws (LLM) in Taxation from the University of San Diego School of Law. Eric publishes extensively on various issues affecting consumer lending and litigation, including both federal and California-specific developments. He is licensed to practice law in California, Nevada, and Oregon, and is admitted in all United States District Courts in the State of California, the United States District Court for the District of Oregon, the United States District Court for the District of Nevada, the U.S. Tax Court, and the Ninth Circuit Court of Appeals. He is also a licensed real estate broker in the State of California.